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Doubt it. End 2014/now - benchmark 10y Treasury (2.17/2,19), Bund (0.54/0.57), JGB (0.33/0.40), Gilt (1.76/1.85).

10 yr yields rise as sellers switch to hold shorter term instead.

5 yr 2014/now: Gilt 2.00/1.42, Treasury 1.65/1.55, German 0.4/0.1, Japan 0.1/0.09.

Many European yields now negative on their short term notes.

http://armstrongeconomics.com/archives/30434

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Market volatility (1999). Shiller uses it in his theoretical discussion of market efficiency in the context of rational and irrational behaviour. Shiller is the one being irrational. While it's straightforward to derive an expression for fair value by discounting dividends and returns indefinitely, the practical computation of said expression makes impossible information demands on our knowledge of the future. Another example of economists preferring mathematical self-consistency to scientific (empirical) rigour.

You said.......

The discounted future dividends model that Shiller employs in his formal definition of value

CAPE is a simple model using (as we know) price and istoric real average earnings. So it is empirical.

Where is this discounted future dividends model in CAPE that you refer to?

The cyclically adjusted price-to-earnings ratio, commonly known as CAPE,[1]Shiller P/E, or P/E 10 ratio,[2] is a valuation measure usually applied to the US S&P 500 equity market. It is defined as price divided by the average of ten years of earnings (Moving average), adjusted for inflation.[3] As such, it is principally used to assess likely future returns from equities over timescales of 10 to 20 years, with higher than average CAPE values implying lower than average long-term annual average returns. It is not intended as an indicator of impending market crashes, although high CAPE values have been associated with such events.[4]

Im not sure what point you are trying to make about CAPE (apart from that the future, as opposed to CAPE, is uncertain? well yeah, no sh1t.)

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10 yr yields rise as sellers switch to hold shorter term instead.

5 yr 2014/now: Gilt 2.00/1.42, Treasury 1.65/1.55, German 0.4/0.1, Japan 0.1/0.09.

Many European yields now negative on their short term notes.

http://armstrongeconomics.com/archives/30434

I'm not sure how that infers a bubble that's going to pop this year though. Even Armstrong (who may be right - I have no idea) refers to something like a 'crisis in government' which will first result in flows moving into bonds before moving into something else. Personally I think it's likely that if yields were to rise a lot, we'd hear whispers of more QE somewhere then another cycle of more front running and lower yields resulting in higher yields after that program starts etc.

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You said.......

CAPE is a simple model using (as we know) price and istoric real average earnings. So it is empirical.

Where is this discounted future dividends model in CAPE that you refer to?

Im not sure what point you are trying to make about CAPE (apart from that the future, as opposed to CAPE, is uncertain? well yeah, no sh1t.)

CAPE isn't the only metric of value identified with Shiller. Over the years he's used various discounted future dividends approaches to argue the difference between rational and irrational market agents. These papers are collected in his book Market Volatility. As it happens, I'm largely to sympathetic to Shiller's conclusions about rationality.

CAPE's shortcomings are well known. To his credit, Shiller has spoken out against attempts to employ CAPE for market timing.

Empirically, financial markets are Markovian/Martingales on time scales >10 min. The Efficient Market Hypothesis (EMH) is trivially true: there are no easily identifiable correlations or systemically repeated patterns in stock prices to exploit. A simple mechanical trading system based on CAPE is thus unempirical and unlikely to deliver market beating returns.

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Fund Manager; Gervais Williams at Master Investor 2015 - well worth a listen all the way through.

This recovery is unusual he says - productivity is flat. 4:30min in

I've never been to the Master Investor show - maybe I should next year. Were they all this bearish? Maybe it's time to hold some shares (or more shares).

Edited by 200p
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CAPE isn't the only metric of value identified with Shiller. Over the years he's used various discounted future dividends approaches to argue the difference between rational and irrational market agents. These papers are collected in his book Market Volatility. As it happens, I'm largely to sympathetic to Shiller's conclusions about rationality.

CAPE's shortcomings are well known. To his credit, Shiller has spoken out against attempts to employ CAPE for market timing.

Empirically, financial markets are Markovian/Martingales on time scales >10 min. The Efficient Market Hypothesis (EMH) is trivially true: there are no easily identifiable correlations or systemically repeated patterns in stock prices to exploit. A simple mechanical trading system based on CAPE is thus unempirical and unlikely to deliver market beating returns.

1. Well we were discussing CAPE not a collection of other papers. It is demonstrably empirical. So thats that.

2. Nobody claimed it is any use for short-term market timing (inc Shiller), certainly not me.

3. Disagree re EMH. Asset markets most certainly are not efficient. trivially or otherwise.

4. In fact, you are (presumably intentionally?) missing the point about CAPE. It is precisely NOT about timing. Its about value and long run investing. So talking about mechanical trading/market timing systems and CAPE is really rather counter-productive dissembling.

Edited by R K
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Seems there is bit of a move in the last 24 hours out of the global equity dip we have seen these last couple of weeks or so.

I can sort of understand the correction on the DAX and the DOW, but I am still scratching my head why people were rushing to sell the FTSE 100 at 6730 24 hours ago. We have got zirp for God's sake, it may be correctly priced on a p/e basis but heck every other asset class on the planet is trading at a 50-100% premium on historic levels to factor in zirp.

Really if you want less expensive than the FTSE 100 go buy some stuff controlled by Putin or Mugabe if you dare...indeed you might find assets a bit less expensive there.

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The FT today had commentary on why the FTSE 100 hadn't had the global equity rerating enjoyed by all other advanced equity Markets. I wouldn't just stop at equity markets, mind, I would add just about every asset class on the planet including property in Beirut.

It all comes down to an opinion on future earnings and growth apparently, which I guess is hobbled by miners, oil and banking.

Still, I'm a believer in buying the runt of the litter, just as I went big into property in 1996 because it looked cheap and out of fashion. If its trading at a discount because the stocks are out of favour, then the down side should be restricted too, and every dog has its day.

edit. TBf I would also add that the fact the FTSE 100 was trading at 3500 a mere 6 years ago will also act as a psychological drag. I guess it all depends whether you use the fact that it had a higher nominal value 16 years ago or the fact it has doubled in nominal terms in six as your point of reference.

Those that see the FT at a near peak don't understand the nominal thing, we are still trying to claw our way out of a 16 year trough.

What really beggars belief is that we still have experts out there that think the FTSE 100 is expensive based on traditional p/e ratios. Erm interest rates are zero, assets are bound to rerate in such an environment.

Edited by crashmonitor
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The FT today had commentary on why the FTSE 100 hadn't had the global equity rerating enjoyed by all other advanced equity Markets. I wouldn't just stop at equity markets, mind, I would add just about every asset class on the planet including property in Beirut.

It all comes down to an opinion on future earnings and growth apparently, which I guess is hobbled by miners, oil and banking.

Still, I'm a believer in buying the runt of the litter, just as I went big into property in 1996 because it looked cheap and out of fashion. If its trading at a discount because the stocks are out of favour, then the down side should be restricted too, and every dog has its day.

edit. TBf I would also add that the fact the FTSE 100 was trading at 3500 a mere 6 years ago will also act as a psychological drag. I guess it all depends whether you use the fact that it had a higher nominal value 16 years ago or the fact it has doubled in nominal terms in six as your point of reference.

Those that see the FT at a near peak don't understand the nominal thing, we are still trying to claw our way out of a 16 year trough.

What really beggars belief is that we still have experts out there that think the FTSE 100 is expensive based on traditional p/e ratios. Erm interest rates are zero, assets are bound to rerate in such an environment.

They have that the wrong way round. HIGH prices = LOW future returns, LOW prices = HIGH(er) future returns. But since it's the FT, no comment.

So, the reason FTSE was selling at 3500 March 2009 was because future earnings growth was mispriced, for instance.

Edited by R K
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If anyone dabbles with computers, you may want to look at the chip producers, not an investor in these but worth keeping an eye on:

AMD $2.31 at multi year lows. They are known for their micro processors, and graphics Radeon cards. Chart http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=amd&uf=0&type=2&size=2&sid=373&style=320&freq=2&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&time=20&rand=988735386&compidx=aaaaa%3a0&ma=1&maval=30&lf=1&lf2=2&lf3=0&height=444&width=579&mocktick=1

They've lost their way a bit according to the financials, https://www.google.com/finance?q=NASDAQ%3AAMD&fstype=ii&ei=8sV9VZnlL4iRsAGxgILQCQPerhaps their losses have bottomed out? Or Apple are killing the PC market. A recent Motley Fool Article, a bullish view http://www.fool.com/investing/general/2015/06/10/is-advanced-micro-devices-inc-really-worth-5.aspx

Other Chip makers:

INTC (Intel) $31.32 http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=intc&uf=0&type=2&size=2&sid=2564&style=320&freq=2&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&time=20&rand=72483423&compidx=aaaaa%3a0&ma=1&maval=30&lf=1&lf2=2&lf3=0&height=444&width=579&mocktick=1

NVDA (Nvidia) $21.21 http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=nvda&uf=0&type=2&size=2&sid=129254&style=320&freq=2&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&time=20&rand=90766754&compidx=aaaaa%3a0&ma=1&maval=30&lf=1&lf2=2&lf3=0&height=444&width=579&mocktick=1

Edited by 200p
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Looks like there is a serious risk now that the Greek drama is going to bust the FTSE 100 through the 6730, the support level of the last few days.

Will stick to my plan of averaging down on 250 drops at the rate of approx. 5% added to my tracker. So the next time I will be looking to invest will be at 6500, maintaining the nominal value of the holding.

Plenty of drama to come beyond Grexit......US rate rise, ISIS, Brexit etc. but still confident in the belief of 7000 revisitation in the next five year...that might be a week or five years away...either way averaging down hits the jackpot.

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